Chapter 9: Global Economic Growth and Development

What is the definition of economic growth?

An increase in per capita real GDP, measured by its annual rate of change.

How is economic growth shown graphically?

As an outward shift of the Production Possibilities Curve (PPC).

Why do small differences in growth rates matter?

It may not matter in the year ahead, but over decades, it makes a big difference due to compounding.

What does the “Rule of 70” state?

This rule states that the amount of years needed for per capita GDP to double is equal to 70/ the average rate of economic growth

Years to double GDP = 70 ÷ growth rate.

What are the main costs of economic growth?

Pollution, resource depletion, and psychological/social stress.

What are the main benefits of economic growth?

Higher incomes and improved living standards.

What are the three components of economic growth?

Growth of capital, growth of labor, and growth of productivity.

What is labor productivity?

Real GDP divided by the number of workers (or amount of labour hours).

nb it increases whenever output per number of workers or number of labour hours increase

How does saving affect growth?

To consume more in the future, you must consume less today.

The difference of your income and consumption should be saved

So if you work for $1000 and your consumption is $600

1000-600=400

Save that 400

What is New Growth Theory?

Examines why technology, research, innovation, are used and how they interact.

What is a patent and why is it important for growth?

A government protection giving inventors exclusive rights to make, use and sell an invention for a period of time (currently 20 years)

What is innovation?

Transforming an invention into something that is useful to humans.

What is human capital and why is it important?

Knowledge and skills acquired by people and it is needed to raise productivity and living standards.

How does immigration affect economic growth?

It adds labor, skills, and consumer demand, which fuel growth.

How do property rights encourage growth?

Secure ownership promotes capital accumulation and entrepreneurship.

What is development economics

The study of factors that contribute to the economic growth of a country.

What percentage of the world lives at subsistence level?

About 50%.

What percentage of the world lives on less than $2/day?

Nearly 10%.

What happens to family size as economies develop?

Families become smaller and birthrates decline.

What are the three stages of development?

Agriculture → Manufacturing → Services.

What are the keys to economic development?

Property rights, education, creative destruction, and limited protectionism.

What is secular stagnation?

A long-term period of very low or no economic growth.

What caused the term “Eurosclerosis”?

Stagnation that began in Europe and spread to other advanced nations

What are the possible causes of secular stagnation?

failure of new tech, low growth in capital & labor, smaller returns from education, and restrictive government policies.

How do regulations affect growth?

Too many or poor-quality regulations constrain growth; business-friendlier rules encourage it.